Focus on Fed and Other Central Banks

December 16, 2009

The dollar is mixed as markets await the FOMC statement around 19:15 GMT today.  No rate change is expected.  A change in language on future rate guidance also seems unlikely, but modifications will be made in economic assessment and possibly comments about unconventional stimulus.

The dollar is up 0.7% against the Australian dollar and 0.4% versus the kiwi following weaker-than-projected Australian GDP data and dovish remarks from Treasurer Swan and the central bank deputy governor.

  • Australian real GDP rose just 0.2% in 3Q and 0.5% from a year earlier.  That was half as much as forecast and a third as strong as second-quarter growth.  Net exports exerted a 1.6 percentage point drag on GDP growth.  The Aussie index of leading economic indicators firmed only 0.4% in September, down from a 1.1% rise in October.  Skilled job vacancies in December, though up 1.9% on month, were still 25% lower than a year earlier.
  • Deputy RBA Governor Battelino said that central bank rates are back within normal boundaries and that the current 3.75% cash rate now is like 4.75% because of residually wider lending spreads than one used to see.
  • The government’s Treasurer claimed that the economic upswing is not yet self-sustaining and that GDP would be still falling without government support.

The dollar has dropped 0.5% against sterling following significantly better-than-expected British labor market figures.  The claimant count of unemployment fell 6.3K, its first decline since February 2008, and October’s increase was revised in half.  Jobs growth of 53K in the 3 months to October were the most since May 2008.  Earnings posted a bigger on-year increase than in the prior month and than had been forecast.

The dollar is also off 0.2% against the euro and Swiss franc.  The Flash PMI scores from Euroland for December are better than assumed.

  • Euroland’s composite PMI improved 0.5 points to a 26-month high.  The factory component firmed 0.4 to 51.6, while services rose 0.7 to a 25-month high of 53.7.  The results imply a more broadly based climb of GDP in the fourth quarter of 2009.
  • Germany’s composite PMI advanced 1.3 points to 54.9, with manufacturing up 0.7 to 53.1 and services recovering 1.7 to 53.1.  Export orders had their strongest reading since the start of the financial crisis in August 2007.  Input price pressure is back.
  • The French composite PMI settled back 0.8 points to 59.4.  Manufacturing (54.4) was unchanged.  Services slid 1.6 to a 2-month low of 59.3.  However, these are still solid readings and leave the region’s fastest-growing economy with good momentum.

Dollar/yen is steady.  Japan’s tertiary index of service-sector activity recovered 0.5% in October after falling 0.6% in September.  The October level was 4.7% lower than a year earlier but 0.2% above the 3Q09 mean.  Machine tool orders increased 0.9% in November but fell 8.4% from a year earlier.

The Canadian dollar is 0.1% firmer.

Stocks have gained 0.9% in Japan, France, and Thailand and are trading 1.3% and 0.6% higher in Germany and Britain.  Equities fell 0.9% in Hong Kong, 0.6% in China and 0.3% in Australia.

The yield on ten-year JGBs fell 3 basis points to 1.26%.  Gilt yields, which have been under upward pressure because of Britain’s runaway budget gap, rose another basis point and now lie just 10 basis points below 4.0%.  The Greek government sold EUR 2 billion of FRNs to commercial banks that will pay euribor plus 250 basis points in an attempt to buttress investor confidence in that nation’s debt.

Oil climbed 1.1% to $71.45 per barrel on worries about U.S. inventories.  Gold recovered 1.0% to $1134.50 per ounce.

The Swedish Riksbank as expected left its refinancing rate unchanged at 0.25% where such has been since July.  Bank charts suggest no increase until 3Q10.  The governor of the bank indicated that the offer of fixed rate long-term cheap liquidity will no longer be necessary.

However, the central bank in the Czech Republic surprised a majority of analysts with another 25-basis point cut of its two-week repo rate to 1.0%.  Such comes on top of 250 bps of earlier rate reductions and despite a return of on-year Czech CPI inflation to the black.

ECB policymaker Nowotny said inflation is muted and he doesn’t expect a rate hike during 1H10.

Foreign direct investment into China was 32% greater in November than a year earlier, which is a sharp pick up.  Such in January-November were 9.9% lower on year.

South Korean unemployment edged up a tenth to 3.5% in November.  Italy’s trade deficit narrowed 22% on month to EUR 710 million in October.

Norway’s central bank, the only one in Europe to hike interest rates already, will announce its latest rate decision today.  Opinion is mixed on whether it will tighten a second time, but the majority leans against that.

U.S. CPI and housing starts data get reported today.  Canada releases results of its latest monthly manufacturing survey.  The FOMC announcement will be around 19:15 GMT (14:15 local time).

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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